Archive for August, 2011
Private Wage Growth Outpaces Federal in 2010
Average private sector wages in the United States rose 3.1 percent in 2010, slightly more than the 2.5 percent increase in average wages of federal civilian government workers. The growth in federal wages was the slowest in at least two decades, and it coincided with a rebound in private wages after the recession, according to new Bureau of Economic Analysis data (see Table 6.6D).
Figure 1 shows average wage growth in recent years for private sector workers (blue line), federal civilian government workers (red line), and employees of the U.S. military (black line). The figure reveals the remarkable “Bush Boom” in government wages that occurred between 2001 and 2005.
Over the last decade, annual average military wages rose 6.6 percent, federal civilian wages rose 5.0 percent, and private sector wages rose 3.0 percent. (Federal “civilian” workers include essentially all federal workers except military and postal workers.)
In 2010, average military wages were $71,295, average federal civilian wages were $83,679, and average private sector wages were $51,986. Thus, federal civilian wages were, on average, 17 percent higher than military wages and 61 percent higher than average private sector wages.
How Much Should Washington Subsidize European Defense?
Illustration by John Camejo for the Washington Times
In today’s Washington Times, I argue that commentators should not take a victory lap—especially for NATO—in the wake of the Libya campaign, and instead should ask what, if anything, the costly commitment does for American security. NATO, I argue,
now constitutes a transfer payment from U.S. taxpayers (and their Chinese creditors) to bloated European welfare states. If the current Washington climate of austerity can serve any fruitful end, surely it should be to reconsider such foolish alliances.
NATO was created to counter the Soviet Union, but its broader purpose in Europe was summed up in an apocryphal quote attributed to Lord Ismay: to keep “the Russians out, the Americans in, and the Germans down.” It helped accomplish those objectives, but not without significant costs. Today the benefits to American national security have disappeared, but the costs to taxpayers remain.
The Libya campaign exposed the alliance’s imbalance. Germany and other NATO members sat out the fight. The U.S. military provided most of the surveillance capabilities, largely via drones, that enabled NATO pilots to bomb Col. Moammar Gadhafi’s loyalists. European air forces ran out of precision-guided munitions and had to come begging for Uncle Sam to provide some. Thus, Washington essentially borrowed money from China to buy ordnance to give to Europe to drop on Libya. The post-Cold War NATO rationale is that we agree to spend and fight and the Europeans agree to support us – sometimes.
[...]
Instead of taking a victory lap when Col. Gadhafi falls, American policymakers should consider the fruits of NATO’s decades-long policy of infantilizing its allies. Now that America is broke, Europe is safe and the Soviet Union is gone, American policymakers ought to acknowledge that NATO in the 21st century constitutes a costly commitment with little benefit for Americans.
Whole thing here. And thanks to the Times and its illustrator John Camejo for providing the terrific illustration seen above.
Rick Perry, Serious Constitutionalist?
In a Washington Examiner column Tuesday, reviewing Texas governor and 2012 GOP presidential candidate Rick Perry’s book, I wrote:
It’s clear from Fed Up! that the guy with a degree in animal science from Texas A&M understands the Constitution better than Barack Obama, former president of the Harvard Law Review.
I said that because Fed Up! is pretty radical for a campaign tract. At times it reads like a call to restore what legal analyst Jeffrey Rosen—borrowing from Judge Douglas Ginsburg’s 1995 Cato article—has dubbed “the Constitution in Exile”—which is to say, the original Constitution, whose doctrine of enumerated powers, Fed Up! notes, effectively vanished after the New Deal.
Alas, there isn’t a lot of room for nuance in a 600-word column; it might have been more accurate to say that Chip Roy, former senior adviser to Sen John Cornyn (R-TX), understands the Constitution a lot better than Barack Obama does.
Roy’s apparently the guy who did most of the heavy lifting on the book. Perry singles him out in the acknowledgments for “special recognition”—Fed Up! “wouldn’t have been possible without Chip’s dedication over the course of several months.” Chip, Perry writes, “you have a brilliant legal mind, and after working with you on this project I will never again attempt one like this without you by my side.”
As these things go, Perry was relatively gracious and hardly tried to hide the fact that he’d had major help. Which is fine. I don’t know whether or not it’s fair to call Mr. Roy the “ghostwriter,” but being a governor is a busy job, and nobody really expects elected officials to write their own books these days.
Even so, when he’s called upon to explain the ideas in a book that he put his name on, Gov. Perry doesn’t exactly impress.
Here’s the transcript from a Newsweek interview the governor did last fall, when Fed Up! came out, and its arguments should have been fresh in his memory.
$154 Million Medicaid Fraud Settlement a Sign of Govt Failure, Not Success
The federal government, four states, and a whistleblower have extracted a $154 million settlement from Par Pharmaceuticals for fraudulently inflating the prices it charges Medicaid, according to the Associated Press.
With Medicare and Medicaid losing roughly $100 billion each year to fraud and other improper payments, however, the fact that a paltry $154 million settlement is news can only mean that federal and state governments are not even trying to combat fraud in any serious way. As I explain in this video, that’s because politicians have almost zero incentive to do so — which makes massive amounts of fraud an inherent part of these programs:
Under ObamaCare, Medicare and Medicaid fraud will only get worse.
What’s Next in the Obamacare Litigation?
My colleagues and I have covered the substance of the Eleventh Circuit ruling that two weeks ago struck down the individual mandate, but where do we go from here? Why hasn’t the Supreme Court yet resolved the conflict between that ruling and the Sixth Circuit’s from earlier in the summer? When will it do so? A few points:
- The government is now likely to seek en banc review, meaning that they want the entire 10-judge court to review the 3-judge panel’s ruling. It’s extremely unlikely that the Eleventh Circuit would grant such a motion because the panel is already 2-1 against and the members of the court not on the panel are a 4-3 Republican-appointed majority. You need a majority (6 of 10) to get en banc review, which means the dissenting Judge Stanley Marcus from the panel, plus the three other Democratic appointees, plus two others. Not gonna happen. Thus, a government motion for en banc rehearing would be a purely political ploy to push the eventual Supreme Court decision past the election — no legal reason to do it. The release of the decision not to grant en banc review (which doesn’t require a written opinion) could be delayed, however, by the writing of a dissent from that denial.
- The earliest the Supreme Court could grant cert — on the existing petition out of the Sixth Circuit — is the moment after this blogpost goes live. (Note that Cato adjunct scholar Tim Sandefur filed an amicus brief supporting that petition for the Pacific Legal Foundation, which brief he describes here.) More realistically, it would be the week before the term opens for argument in October, right after the so-called long conference, when the justices review and rule on all the petitions that have come in over the summer. But they’ll likely wait to get the Eleventh Circuit case because they’d probably rather hear from the 26 states (and their counsel, former solicitor general Paul Clement) than any other plaintiffs. Here’s where it gets interesting: Assuming the government asks for en banc review, the plaintiffs could still file their own cert petition because they lost on severability and the Medicaid-coercion issue. Stay tuned.
- I still think this will get to the Court this term one way or another, with argument in the spring and a decision the last week of June.
- No stay of the Eleventh Circuit’s ruling is needed because the individual mandate doesn’t go into effect until 2014 and that’s the only provision that’s been struck down. So we don’t need to go into the type of analysis we did after Judge Vinson’s decision about what the federal government is authorized to do to keep implementing the legislation, in the 26 states or generally.
For more analysis, largely based on the above, see Jennifer Rubin’s Washington Post blog.
Forced Mortgage Refinance Does Not Create Wealth
The New York Times has gotten Washington all worked up with the suggestion that we can turn around both the economy and the housing market if only Fannie Mae and Freddie Mac gave all underwater borrowers an automatic reduction in their interest rate.
The thinking, as illustrated by that world class economist Matt Yglesais, is “with a lower monthly interest payment, an indebted household can pay down other debts more rapidly. A less-constrained household will increase its consumption of goods and services.” What this misses is that a mortgage is one person’s liability, but another person’s asset. By replacing a mortgage that yields 6% with a mortgage that yields, say, 4%, you decrease the value of that mortgage (or mortgage-backed security). So whatever increase in consumption you get from making the borrower better off is reduced by making the investor worse off. There’s no magic in wealth redistribution.
I’ve argued all this before, but the reality is that the push to give underwater borrowers a free re-finance is not about economics, it is about politics. Heading into the 2012 elections, this plan offers Obama the chance to give millions of borrowers (and voters) a freebie. Of course, it isn’t free. Even if the investor is the taxpayer, as in the case of Fannie and Freddie, it is simply a transfer from one set of taxpayers to another.
I was a little surprised, however, at Yglesais’s admission that he just discovered ” that Fannie & Freddie are overseen by an independent regulator.” That’s mortgage finance policy 101. But then why let any study of the facts or details get in the way of a good political giveaway.
What again is the great tragedy of borrowers being stuck with mortgage rates of 5.5 or 6.0 percent? Those are quite low by historical standards. And if the borrower wanted their rate to decline when overall rates decline, they should have taken out an adjustable rate mortgage.
Small Business Administration to Close?
According to Lloyd Chapman, the hyperbolic president of the American Small Business League, legislation introduced by Sen. Richard Burr (R-NC) would close the Small Business Administration. Chapman actually stated on a Fox Business News show that Burr’s bill is “the worst idea in the history of America.” And here I thought it was Rick Santorum’s decision to run for president.
Unfortunately, Burr’s legislation does not close the SBA. It merely combines the SBA, the Department of Commerce, and the Department of Labor into one bigger bureaucracy that would be known as the “Department of Commerce and the Workforce.” In other words, it just rearranges the deck chairs. Title VI of the bill spells out what programs would be terminated (not much) and I don’t see any mention of the SBA.
Although I don’t consider Burr’s bill to be the worst idea in the history of America, I’m not excited about it either. Not only would it not cut federal spending in any meaningful way (if at all), it’s an idea that’s over a hundred years old. A Department of Commerce and Labor was created in 1903. In 1913, the Department of Commerce was born when the Bureau of Labor was split off to form a new Department of Labor.
The title of an anti-Burr bill piece recently penned by Chapman calls the SBA “the Most Important Agency in Washington Today.” That’s probably news to even the SBA. Chapman starts off by claiming that “Republican members of Congress have once again drafted legislation aimed at ending all federal programs that assist small businesses.” Huh?
Then there’s this whopper:
To think about closing the only agency in the country that helps small businesses is unconscionable. Clearly Republicans like Senator Burr, his supporters and groups such as the CATO Institute are directed like puppets by the defense and aerospace industry.
Sorry, Lloyd. The essay on terminating the SBA that I recently coauthored with Veronique de Rugy was not written at the behest of the defense and aerospace industry. And I don’t think the defense and aerospace industry has been behind Cato’s work on downsizing the Department of Defense either.
Whereas the essay I wrote with Veronique is primarily focused on why the SBA’s loan guarantee programs should be abolished, Chapman and his organization are primarily focused on making sure that small businesses get a certain percentage of government contracts. Chapman is correct that government contracting is fraught with fraud and abuse. In that regard, he says that the SBA needs to be cleaned up. But if the SBA has failed as an independent agency after all these years to please Chapman, why then would it be the end of the world to fold the SBA into a cabinet-level agency?
I’m probably just wasting my time asking the question. After all, this is same Lloyd Chapman who caused a ruckus a few years ago because Sen. Tom Coburn (R-OK) had the audacity to invite Veronique to testify at a hearing on the SBA. In Lloyd’s world, the de Rugy invite meant that Coburn wanted to abolish the SBA. Coburn is now in his second term and still hasn’t introduced legislation to abolish the SBA.
I’m all for a serious discussion and debate on the SBA. The SBA’s loan guarantee programs benefit a relatively tiny number of small businesses at the expense of the vast majority of small businesses that do not receive government support. Moreover, the biggest winners from these loan guarantees are big banks who reap the profits but get to kick the bulk of any losses to the government. One would think a pro-small business/anti-big business guy like Chapman would be concerned by this. Instead, Chapman consistently resorts to wild exaggerations and conspiracy theories. As a result, I can’t take him seriously. It’s too bad policymakers do.
Rachel Maddow’s Big Thoughts on Infrastructure
Is Rachel Maddow sure she wants the government to “think big,” as she says here standing in front of the Hoover Dam?
Maddow’s advertisement on MSNBC caught my eye because it captures the naïve liberal belief in the goodness of large government projects. Liberal pundits keep telling us that we need a giant boost in federal infrastructure spending to aid the recovery. But the pundits never seem to worry about the quality of government investments. And they seem blissfully unaware of the history of damage caused by governments that have thought big on infrastructure.
Hoover Dam was built by the U.S. Bureau of Reclamation, an agency with an appalling history of environmental damage and support of boondoggle projects. For most of the 20th century, the agency ran amok pouring concrete in every river system in the West, and in the process destroying wetlands and salmon fisheries. The government’s Corps of Engineers has a similar record of environmental damage and economic miscalculation on its big infrastructure projects.
It’s not just water infrastructure where “thinking big” by the government has been damaging. Thinking big led to the federal government’s disastrous high rise public housing projects in Chicago and elsewhere. Thinking big led to awful “urban redevelopment” projects that paved over city neighborhoods and replaced them with hideous Soviet-style office blocks.
I don’t want the federal government thinking big on infrastructure, and I doubt if Maddow would either if she knew more about the history. I encourage her to read the classic Cadillac Desert to get a better understanding of what government infrastructure spending on dams is all about. Then I would suggest she do her next MSNBC spot at the site of the Teton Dam in Idaho (see also this and this), which was an economic joke and a federal engineering disaster.
The Sodom and Gomorrah of Public Schooling?
I was tied up when the massive Atlanta School District cheating scandal broke last month, and so didn’t get around to blogging it. [Recap: nearly 200 teachers and principals in half of the district's 100 schools were involved]. But, with other large-scale cheating investigations still on-going, U.S. Education Secretary Arne Duncan was asked about the problem yesterday during a video-taped “Twitter town hall” (minute 12:00). Specifically, he was asked if the high-stakes tests mandated by NCLB are to blame (minute 16:50). Though Duncan made an off-hand comment that high-stakes NCLB-required tests may have contributed to the pressure that lead to the cheating, he repeatedly blamed the cheating on a uniquely “morally bankrupt culture” in Atlanta’s public schools. That didn’t convince interviewer John Merrow, who cited several other cities where cheating investigations are underway—nor should it convince you.
The problem is not that Atlanta is the Sodom and Gomorrah of public schooling. The problem is that state schooling separates payment from consumption. The accountability mechanism of competitive markets—the only such mechanism that actually works—requires the payer to also be the consumer, because the central incentive for any service provider is to please the payer. So if the consumer isn’t paying, he or she is rendered relatively unimportant in the eyes of the provider. Atlanta parents want their children to be well educated, but a lot of work is required to meet that goal. State and federal bureaucrats just want high scores on NCLB-mandated tests—that’s much easier to achieve by cheating than by doing an excellent job teaching. So there is an incentive for school officials to cheat because they are paid by the bureaucrats, not by the parents. Not every teacher succumbs to this incentive, of course, but the incentive is very clearly putting pressure in the wrong direction.
Now consider the incentive structure of schools paid directly by parents in tuition. The incentive in that scenario is to give parents what they want, which is usually a high quality education for their children. Certainly schools could try to lie to parents about how well their children are doing, but this is much harder than lying to bureaucrats. A great many parents will notice a discrepancy if their illiterate children are awarded A’s. And parents considering a school will notice a discrepancy if the “A”-graded graduates of that school somehow cannot gain admission to, or often drop out of, the next higher level of education. Word of mouth—and now word-of-social-networking-apps—is a powerful thing. So it’s much harder for parent-funded schools to get away with cheating, even if they were predisposed to use that strategy.
This is why no system of education that relies exclusively on third-party payment will ever match the quality and progress that we have come to expect in every other field. Indeed, it argues for finding ways of ensuring universal access to education that rely, as much as possible, on direct payment of tuition by parents. Of all the currently viable education policies, the one that fits that description best is the education tax credit—particularly direct credits for families’ own education expenses. And, among third-party payment methods, scholarship tax credits also have advantages over the alternatives.
This is a reality many folks will not want to hear or accept, but reality is not optional.
Kauffman on Bierce
Do yourself a favor and click on over through this link to read Bill Kauffman’s WSJ review of a new edited collection of Ambrose Bierce’s work, including his famous Devil’s Dictionary. As Kauffman writes:
Bierce’s politics amount to an aristocratic libertarianism. “In a republic,” he writes, the rabble are “those who exercise a supreme authority tempered by fraudulent elections.” The “dominant and controlling” tribe in human affairs is that of the “idiot.” A revolution is “an abrupt change in the form of misgovernment.”
Bierce emerges from his dictionary not so much a misanthrope as a man who expects the worst and makes the best of it. He possesses a marvelously large vocabulary, which he deploys with Menckenesque glee. Why say “war of words” when you can use “logomachy”? Most of all, Bierce offers the pleasure of lacerating wit, felicitously phrased.
This welcome omnibus, rather than supplying a concluding sentence to the story of Ambrose Bierce, reintroduces a fantastically imaginative and unflappable cynic to an America that needs acutely honest humor now more than ever.
I may have to replace my yellowed old copy of Dictionary, which has tick marks just in the letter “P” section next to Bierce’s definitions of politics (“A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.”) and presidency (“The greased pig in the field game of American politics.”) But perhaps the highlight is his take on patriotism: “Combustible rubbish ready to the torch of any one ambitious to illuminate his name. In Dr. Johnson’s famous dictionary patriotism is defined as the last resort of a scoundrel. With all due respect to an enlightened but inferior lexicographer I beg to submit that it is the first.”
The Dumbest Budget ‘Plan’ Yet
Are you aware of the budget plan that promises to cut federal spending by 25 percent per year and has been endorsed by seven Republicans running for president? I just found out about it this week in Steve Chapman’s latest column. Having checked it out, I think I know why I hadn’t heard of it: it’s the dumbest “plan” out there.
The so-called plan comes from an organization called Strong America Now, which bills itself as a “nonprofit organization dedicated to educating and mobilizing a bipartisan, grassroots effort focused on eliminating the national debt and deficit using a proven waste-elimination process called Lean Six Sigma.”
I say “so-called” because I don’t see any actual plan on the organization’s website other than this:
Strong America Now is proposing that every department, agency and program in the federal government go through the waste elimination process, Lean Six Sigma. This process is a proven method of eliminating waste with a focus on speed and quality. Mike George, the founder of Strong America Now, is the pioneer of Lean Six Sigma. He estimates that at least 25 percent all government spending is waste that can be eliminated. With the skyrocketing national deficit, Strong America Now believes the president has a duty to look at eliminating waste. The group’s plans to influence the next president to do just that.
Come again?
I don’t take issue with George’s guesstimate that 25 percent of all government spending is waste. But the notion that federal spending can be cut by 25 percent every year by implementing particular quality control procedures in government is crackpot.
As I recently stated in my testimony before a Senate committee hearing on the Small Business Administration, “waste, fraud, and abuse always comes with government programs — the same way a Happy Meal always comes with a toy and a drink.” It’s unavoidable, yet many policymakers would have the American people believe that our budgetary problems can be solved with a little house cleaning. Sadly, a lot of Americans do believe it.
New CBO Numbers Confirm – Once Again – that Modest Spending Restraint Can Balance the Budget
The Congressional Budget Office has just released the update to its Economic and Budget Outlook.
There are several things from this new report that probably deserve commentary, including a new estimate that unemployment will “remain above 8 percent until 2014.”
This certainly doesn’t reflect well on the Obama White House, which claimed that flushing $800 billion down the Washington rathole would prevent the joblessness rate from ever climbing above 8 percent.
Not that I have any faith in CBO estimates. After all, those bureaucrats still embrace Keynesian economics.
But this post is not about the backwards economics at CBO. Instead, I want to look at the new budget forecast and see what degree of fiscal discipline is necessary to get rid of red ink.
The first thing I did was to look at CBO’s revenue forecast, which can be found in table 1-2. But CBO assumes the 2001 and 2003 tax cuts will expire at the end of 2012, as well as other automatic tax hikes for 2013. So I went to table 1-8 and got the projections for those tax provisions and backed them out of the baseline forecast.
That gave me a no-tax-hike forecast for the next 10 years, which shows that revenues will grow, on average, slightly faster than 6.6 percent annually. Or, for those who like actual numbers, revenues will climb from a bit over $2.3 trillion this year to almost $4.4 trillion in 2021.
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